Mobile World Congress (MWC) kicked off with a bang, with Mozilla announcing a US$25 smartphone built around a turnkey solution that features silicon from China-based Spreadtrum and software from Firefox.

According to a Mozilla press release, Spreadtrum and Mozilla have now completed the integration of Firefox OS with several of Spreadtrum's WCDMA and EDGE smartphone chipsets, including the SC6821, unveiled by Spreadtrum as the industry's first chipset for a US$25 smartphone.

So the key to the solution is the SC6821, which Spreadtrum stated is "designed with a unique low memory configuration and high level of integration that dramatically reduces the total bill of materials required to develop low-end smartphones." Mozilla added that with this chipset, handset makers will be able to bring to market smartphones with 3.5-inch HVGA touchscreens, integrated Wi-Fi, Bluetooth, FM and camera functions, the advanced phone and browser features of Firefox OS, and access to an ecosystem of web and HTML5 applications.

With a clearer picture of the specs Mozilla envisions for a US$25 smartphone, I approached Digitimes Research Analyst Luke Lin to ask if he thought it was possible to deliver such a product to the market at this time. According to Lin, the simple answer is that it would be "impossible" to see a US$25 Firefox phone hit the shelves this year, unless operators are willing to provide subsidies.

Lin explained that currently, the absolute lowest smartphone BOM in China is estimated to be around US$22 (and most are significantly more than that) and that manufacturing costs are highly unlikely to go below US$20 this year, which would be the cost needed to deliver a US$25 smartphone to end users. The cost would need to get to US$15-20 FOB in order to get a selling price of US$25, Lin said.

In terms of Spreadtrum's claims it has produced a level of integration and memory requirements that can reduce the BOM cost significantly, Digitimes Research Analyst Anthony Chen commented that Spreadtrum's solution is no more integrated than any other integrated solution on the market so there is no clear advantage there. And as for memory, the cheapest and smallest memory modules (ROM and mobile DRAM) for smartphones in China run about US$5 for a configuration of 256MB ROM and 256MB of mobile DRAM, and Chen highly doubts the Mozilla solution could run with a lesser configuration than that.

One other argument being offered as to why Spreadtrum could offer lower pricing than competitors is that the China government has a stake in the company. The logic is that an edge in pricing could help Spreadtrum better compete with Taiwan-based MediaTek and US-based Qualcomm.

Chen responded to the suggestion by pointing out that such a statement is not really an argument. It's merely speculation. Moreover, Chen noted that Spreadtrum's cheapest products currently sell in the US$3-4 range, and he doesn't see much chance for the price to be reduced significantly, with subsidies or without.

While it is true that BOM costs are always falling, Lin and Chen agreed that component makers are much more likely to be squeezed in the higher-end segments, where they have margins. At the bottom of the market, the component makers are not really making any money. As a long term strategy for the low-end of the market, they would much prefer to provide improved specs at the same price rather than cut prices, Lin explained, while adding that it is unlikely that the BOM would drop much further at the bottom end of the market, as it is already close to US$20. Therefore, while prices may drop a little, Digitimes Research does not expect prices to drop all that much in the near future.

Another perspective was offered by Digitimes Research Analyst Jason Yang, who stated that if there is any component that could influence the low-end smartphone BOM at this point, it was the touch panel, not the application processor. Yang indicated that currently the touch panel module, with LCD display, accounts for the largest portion of the BOM, at around US$7-8 for the cheapest modules. Yang did state that he believes the price may drop this year, but not enough to bring the overall BOM cost of the cheapest phones to below US$20.

So, if ultimately the announcement was all about Mozilla driving the launch of a US$25 smartphone, Lin doubts that this will happen this year or anytime soon. Based on the current cost structure, Lin believes Firefox models priced in the US$60-80 are more likely to appear in 2014. Of course, users may be able to find spectacular deals and price cuts, but such a situation would more likely be inventory clearance or something similar, not a mainstream price point.

However, if this announcement is not about Mozilla driving the market to low-cost smartphones and is more about a trend where emerging markets will become flooded with cheap smartphones, then it should be noted that this is a process that is already underway.

Currently in China, entry-level smartphones - mostly white-box but even some brands - are already selling in the US$50 range. And these smartphones are not just being shipped to the domestic market. China vendors exported about 30% of their smartphones in 2013 and that proportion is forecast to rise in 2014. According to Digitimes Research data tracking smartphone shipments by vendor and the related market breakdown, the non top-10 segment (which is dominated by Greater China vendors and white-box players) accounted for 12% of global smartphone shipments in 2012, 21% of the global market in 2013, and Digitimes Research forecasts the share will rise to 25.6% in 2014.

So the flow of cheap smartphones from China going to emerging markets has already started and the shipments are steadily increasing, it's just that the devices cost a bit more than US$25 and almost all of them feature Android as the OS.

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